Division Summary: Enforcement

The DOE program investigates and prosecutes alleged violations of the CEA and Commission regula­tions. Possible violations involve improper conduct related to commodity derivatives trading on U.S. exchanges, or the improper marketing and sales of commodity derivatives products to the general public.

Budget Overview by Mission Activity

Enforcement Request($ in thousands)

FY 2011
Actual

FY 2012
Base

FY 2013
Request

Budget

Positions

FTE

Budget

FTE

Budget

FTE

Enforcement

$37,051

161

164

$38,198

166

$51,979

214

Enforcement Request by Mission Activity($ in thousands)

Mission Activity

FY 2012
Base

FY 2013
Request

Change

Budget

FTE

Budget

FTE

Budget

FTE

Enforcement

$38,198

166

$51,979

214

$13,781

48

Enforcement

$13,781

48

Enforcement

In FY 2011 the Commission filed 99 enforcement actions, the highest annual number of filings in program history, and opened more than 450 new investigations, also a program high. During the same period the Commission obtained orders imposing over $290 million in civil monetary penalties, and directing the payment of more than $160 million in restitution and disgorgement, which more than doubled the prior fiscal year's imposition of such sanctions. At the same time, the FTE level dedicated to the DOE program has only reached the operating levels that it had nearly a decade ago with a much smaller docket (in size and complexity).

The Dodd-Frank Act significantly enhances and expands the Commission's powers and responsibilities and will, certainly by FY 2013 if not much sooner, result in a substantial increase in our workload. Moreover, the size of the docket stemming from pre-DFA enforcement authorities, particularly with respect to the investigation and prosecution of frauds against retail customers, manipulation, supervision failures, recordkeeping, reporting and trade practice violations, is projected to continue its upward trend.

By FY 2013, the Commission's enforcement workload will increase for a number of reasons including:

Establishment of anti-fraud and anti-manipulation authority over swaps;

New prohibitions against reporting false information;

Clarified jurisdiction with respect retail foreign currency transactions and new authority over retail commodity transactions such as precious metals;

Increase in the number and types of registrants, including exchanges, SEFs, swap data repositories, clearing organizations, intermediaries and dealers;

New regulations applying to swaps and other intermediaries including those involving business conduct standards, fraud, record-keeping, reporting and trade practice; and

An increase in international scope of activities.

The enforcement activity generated by this broadened regulatory authority will necessitate the development of specific areas of expertise, and require an increased capacity for proactive identification of violations. Our litigated cases, particularly any involving anti-manipulation and disruptive trading practices, will tax our resources more than in prior years.

To begin preparing for the increased regulatory scope, the Commission made internal changes to the management of its enforcement function to promote greater flexibility and efficiency in the Commission’s DOE program in FY 2011. These changes include flattening of the organization; changing from small teams with pre-set rosters to a system that forms teams depending upon the needs of cases; and developing areas of specialization for staff in certain enforcement areas.

In FY 2013, the Commission seeks an additional 48 FTE to support fraud enforcement matters, including retail investor fraud matters (13 FTE); manipulation and disruptive trading enforcement matters (19 FTE); regulatory, supervision and trade practice matters (9 FTE); and enforcement matters related to swaps (7 FTE). The largest increase for manipulation and disruptive trading matters reflects the complexity and time intensity of those investigations. The smaller increase in staffing for swaps enforcement reflects the newness of the regulatory framework. It is likely that the Commission will request additional resources for enforcement matters related to the expanded swaps mandate in future years. In addition to staff years, the Commission is requesting an increase in resources to support the costs associated with an increased enforcement docket, including additional travel, expert services and transcript needs. These costs are inherent in the successful investigation and litigation of enforcement matters.

Top FY 2011 Accomplishments

Filed 99 enforcement actions, the highest yearly tally in the agency’s history and a 74 percent increase over the prior fiscal year. The CFTC charged individuals and companies in these cases for manipulating commodity prices, perpetrating Ponzi schemes and other fraud, supervision and accounting failures, trading abuses, registration deficiencies, and committing other violations of the CEA and regulations.

Opened more than 450 investigations, another program high.

Obtained orders imposing over $290 million in civil monetary penalties, and directing the payment of more than $160 million in restitution and disgorgement, which more than doubled the prior fiscal year’s imposition of such sanctions.

Actively engaged in cooperative enforcement with federal and state criminal and civil law enforcement authorities. During FY 2011, more than 70 indictments and convictions were obtained in criminal cases related to CFTC enforcement actions.

Engaged in cooperative enforcement with international authorities in a wide range of matters from retail fraud to market manipulation. The Division routinely works with domestic and international financial regulatory and criminal counterparts on multi-jurisdictional and multi-national investigations. Requests and referrals to and from foreign authorities continued to grow during FY 2011. Handled over 530 international requests and referrals, an approximate 20 percent increase over FY 2010.

Implementation of internal changes to the management of its enforcement functions to promote greater flexibility and efficiency in preparation for the increase in regulatory scope. These changes included flattening of the organization; changing from small teams with pre-set rosters to a system that forms teams depending upon the needs of cases; and developing areas of specialization for staff in certain enforcement areas.

Top FY 2012 Planned Outcomes

The maintenance of current levels of enforcement activity based upon pre-Dodd Frank authorities, particularly with respect to the investigation and prosecution of frauds against retail customers, manipulation, supervision failures, record-keeping, reporting and trade practice violations.

The continued expansion of enforcement activity involving manipulation, disruptive trading, swaps and retail commodity transactions based upon new Dodd Frank authorities.

Continued evaluation and improvement of effectiveness in investigations and pursuit of violative activity which affects the public, markets and market participants.

The enforcement program in FY 2012 will be guided by new and expanded enforcement authorities provided by the Dodd-Frank Act. These include the addition of fraud-based manipulation to the Commission’s existing anti-manipulation authority, prohibitions targeting disruptive trading practices and other misconduct on registered entities, anti-fraud and anti-manipulation authority over swaps, clarified jurisdiction with respect to retail foreign currency transactions, and new authority over cash commodity transactions such as those involving precious metals.

Under the Dodd-Frank Act the Commission anticipates that significant increases in the number of registrants concerning swaps related activity will commence in FY 2012. Increases in the number of registrants and associated trading activity will likely increase the enforcement burden with regard to the investigation and prosecution of regulatory compliance failures (including business conduct standards), fraud, record-keeping, reporting and trade practice violations.

Top FY 2013 President's Budget & Performance Planned Outcomes

Continued growth in enforcement cases filed under the new jurisdiction and enforcement powers provided under Dodd Frank including fraud based manipulation, manipulation authority over OTC trading, and enforcement of new false reporting prohibitions.

The deliberate and specialized growth of swaps enforcement activities and expertise.

Increased automation of investigation, discovery, forensics, evidentiary analysis, and case management. Implementation of new tools for forensics, eDiscovery, tips and referrals, and early case assessment together with enhancement of existing tools for deposition management, case management, searching, and analytics will support both a higher volume of investigations and more effective measurement of program results.

New case filings in FY 2011 and FY 2012 will carry a "delayed" resource burden in FY 2013 as those matters are litigated through the federal courts.

Domestic and international cooperative enforcement efforts will continue to be a force. The Commission has seen a significant increase in both the number of outgoing and incoming international requests over the last several years. This increase is directly related to the increase in enforcement cases in general, thus an escalation in international activity is expected to continue through FY 2013 and beyond.